States peer into GST budget abyss

Several states preparing their budgets have now warned that slower than expected economic activity will slash their GST receipts.

NSW Treasurer
Mike Baird
admitted yesterday that his state’s Treasury department had warned the new Coalition government that plummeting GST income could help produce several operating deficits worth $4 billion. West Australian Treasurer
Christian Porter
said his state was facing a $550 million GST black hole.

Victoria will release its budget on May 3, making it the first jurisdiction to open its books this year.

It emerged this week that the Vic­torian Treasury expects GST receipts to be $1.5 billion lower over the forward estimates as a result of lower GST income to the commonwealth.

Mr Baird confirmed yesterday that the NSW government was expecting a significant hit to GST revenue.

“GST is going to be down hundreds of millions of dollars," he said. “There’s no doubt about it."

He said the government had already been briefed by Treasury, which forecast that a drop in GST revenue would contribute to budget deficits totalling almost $4 billion in the three years to June 30, 2015.

The NSW government has commissioned an audit to verify the figures released in the briefing and it is expected to report back next week.

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Asked whether he was concerned about the economic outlook, Mr Baird said: “I don’t think any treasurer is being genuine unless they said that they were worried.

“It’s very clear that households are starting to hang on to their money, which is having a knock-on impact into the retail sector and affects the state budget."

Mr Porter said latest WA Treasury estimates were that the state would rake in $550 million less in GST over the forward estimates than predicted in the December mid-year review.

He argued that the result highlighted the fragility of the state’s GST revenue stream, which was already under threat because the state was being unduly penalised for the sizable mining royalties it raised.

“This is obviously a disappointing result but highlights the fact that far from the state government having ample revenues, it is rather the case that the slower parts of the economy are causing significant revenue decreases," he said.

“Revenue decreases from stamp duty because of the stagnant housing market were the initial problem, the declining share of the GST relativities [due to mining royalty adjustments] was the secondary problem and now a further problem has emerged, being a forecast decrease in the total GST pool.

“These are matters largely outside the state government’s control that ultimately mean that the state government is not enjoying anything like the windfall revenues experienced by the previous government."

South Australian Treasurer Jack Snelling also agreed that GST receipts were likely to take a hit.

“Based on observations of current economic indicators, it would come as no surprise to see a soft result in GST return."

Westpac Banking Corp senior economist Andrew Hanlan said GST revenues would have taken a combined hit from lower than expected economic growth and softer domestic demand, particularly at the end of the 2010 calendar year. Mr Hanlan said the bank was forecasting that annual ­economic growth would be between 2 per cent and 2.25 per cent compared with 3.25 per cent forecast in the ­commonwealth’s mid-year budget update.

Westpac also put consumption growth at 3 per cent, which was a full percentage point lower than the federal forecast as consumers continued to save at higher than anticipated rates, he said.

The federal mid-year update had predicted $50 billion in GST revenue would be available in the coming year.

Mr Hanlan said treasuries could choose to accept a new lower base founded on the less optimistic forecasts, which would produce a more damaging outlook over the forward estimates, or factor in a recovery.